1. The case 'Market expansion strategies of Maruti Udyog' examines
the market expansion strategies adopted by Maruti Udyog
Limited (MUL), India's biggest carmaker, in response to intense
competition and a decline in sales of its bread-and-butter model -
the Maruti 800. MUL enjoyed a near-monopoly status, until the
Government of India liberalized the economy in 1991.
This led to the entry of foreign players like Hyundai, Fiat,
Mitsubishi, and Toyota. Even Indian auto players like Tata
Motors and Mahindra and Mahindra entered the fray to give
MUL tough challenges. MUL began to introduce new models,
and upgrade its existing models in response to market demand.
For instance, the company introduced the hatchback 'Swift' to
shed its image of being a manufacturer of low-cost staid cars. The
case study looks into how MUL came back from the crunch to
retain its place as the top carmaker in India. It also deals with the
tussle between Suzuki Motor Corporation and the Government of
India over ownership issues.
The case highlights the promotional offers undertaken by MUL in
its quest for market dominance and examines how the company
was able to mould itself according to the market requirements, by
entering new domains and reaching out to potential customers
through its 'True Value' and other promotional offers.

2. Issues:
The case is designed to help students:
• Gain an overview of the Indian automobile Industry, especially
the passenger car market.
• Study the rise of MUL, and its measures to tackle competition
successfully.
• Analyze the impact of macroeconomic variables like
government regulations and environmental guidelines (Euro
norms) on the functioning of an automobile manufacturer in
India.
• Show how promotional offers can work wonders for a company
in expanding the market and overcoming competition.
• Provide an overview of the pre-owned/used car market in
India.
Introduction
Maruti Udyog Limited's (MUL) share of the Indian passenger
vehicle market dropped to below 50% in 2004-05 (Refer to Exhibit
I for the performance of the Indian passenger vehicle industry
and MUL between April 2003 and March 2005). The future of
MUL's low-cost model - the Maruti 800 (M-800) - was at stake due
to the entry of global automakers into India.
M-800 had dominated the Indian car market since it was
launched in 1984. The introduction of new cars by competitors
made the M-800 look obsolete as it had not been changed in any

3. major way for over two decades. Apart from the increased
competition, MUL also had a few other problems on its plate.
There was a delay in setting up of a plant in India for
manufacturing diesel engines and transmission systems for cars.
The engines for its diesel variants were imported from other
countries, and there were limits on the quantities it could import.
In the market, MUL's models like the Zen, Alto, WagonR, and
Baleno were showing mixed results.
While Zen, Alto and WagonR were successful, Baleno failed to
live up to MUL's expectations. Its utility vehicle 'Versa' met with a
disastrous response from the Indian consumer. In addition, rising
incomes, the growth in the used-car market, and availability of
easier finance options, led customers to shift their allegiance to
other models from competitors. To reduce its excessive
dependence on a single model (M-800), the company had
restructured the strategy for the M-800, and planned for product
upgrades and new product development. In tune with changing
customer preferences, the company launched its hatch-back
model, 'Swift' in May 2005, to compete with Hyundai3 Getz and
Fiat4 Palio.
ntroduction Contd...
MUL hoped this model would help the company shed its low-
cost and simple look. The move expressed the company's intent to
move up the value pyramid (by upgrading Alto-WagonR-Santro

4. customers to the new model) while simultaneously increasing
market penetration at the bottom of the value pyramid by making
the M-800 more affordable.
Indian Automobile Industry
The Indian automobile industry has four major segments --
commercial vehicles (CVs), passenger vehicles, three wheelers,
and two wheelers. The market share for each of these segments of
the Indian automobile industry, for the year 2003-04, is shown in
Figure I.
According to the Society of Indian Automobile Manufacturers
(SIAM) , the Indian passenger vehicle market has three categories
-- passenger cars, multi-purpose vehicles (MPVs), and utility
vehicles (UVs)
The passenger car market is further divided into various
segments based on the length of the car (Refer to Exhibit II for a
detailed description of the lengthwise classification of passenger
cars.
The Indian automobile industry was a highly protected slow-
growth industry with very few players till the opening up of the
Indian economy in 1991. Low manufacturing costs, availability of
skilled labor, an organized component industry, and the
capability to supply in large volumes attracted global auto majors
to set up their operations in India after the opening up of the
sector.
For example, Fiat and DaimlerChrysler started outsourcing their
component requirements to India. 100 percent Indian subsidiaries
of global players, like Delphi Automotive Systems and Visteon ,

5. exported components to other parts of the world.
Macroeconomic factors like government regulations, low interest
rates, and availability of retail finance played an important role in
the rapid development of the automobile industry in India during
the late nineties (Refer to Exhibit III for an understanding of the
impact of the Union Budget on the Indian automobile industry
over the years)...
Excerpts
Maruti Udyog Limited
MUL's M-800 was ideally suitable for Indian customers as it was
reasonably priced, fuel efficient and was sleek and easy to drive
when compared to the models then available. With the success of
its M-800, MUL soon replaced Hindustan Motors as the leader in
the passenger car market...
Government of India - Suzuki tussle
In August 1997, there was a major difference of opinion between
the GoI and SMC regarding the appointment of the Managing
Director (MD) for MUL. SMC did not support the appointment of
R. S. S. L. N. Bhaskarudu (Bhaskarudu), holding that he was
incompetent to hold the post...
Decline in market share
There was a gradual decline in the market share of MUL over the
years from 1999 to 2004. This happened even though MUL had
slashed prices of certain models on a couple of occasions...

6. Maruti Strikes Back
Launch of new variants and models
Despite analysts predicting that the M-800, the bread and butter
model of MUL, would be phased out, the company asserted that
it would take necessary steps to maintain its leadership position.
MUL had three compact car models -- Alto, WagonR, and Zen --
competing with Hyundai Santro, Tata Indica, and Fiat Palio...
Increasing dealer profitability
During 2003 and 2004, MUL visualized and implemented a
strategy for its dealers to increase their profitability levels in view
of increased competition. According to the strategy, the 300-odd
dealers of the company were asked to strengthen their
manpower, increase the salaries of their sales agents, and offer
them better incentives...
Promotional offers
Faced with stiff competition and declining market shares, MUL
focused its promotions strategy on targeting two-wheeler
owners...
'Change Your Life' campaign
In 2003, MUL launched novel offers like "Change Your Life"
campaign and also offered vehicle insurance 'for Rupee One
only', to attract customers...

7. Television campaigns
In 2003, MUL came out with a toy car advertisement that became
popular for its simplicity and straightforward message. The
advertisement depicted a child playing with a toy car. When
reprimanded by his father the child replies, 'Kya karoon papa
petrol khatam hi nahin hota' (What should I do? The petrol never
finishes)...
Excerpts Contd...
'2599' offer
In 2004, MUL introduced the '2599' offer under which a consumer
could buy an M-800 by paying an EMI of Rs 2,599 only, for a
period of seven years. The down payment was fixed at Rs 40,000.
MUL entered into an agreement with the State Bank of India
(SBI), the largest bank in India, to promote this scheme...
Teacher Plus' scheme
To further penetrate into the market, MUL continued to focus
its efforts on the rural markets and specific target groups. In
2004, it introduced the 'Teacher plus' scheme, in a tie-up with
SBI, aimed at teachers who were interested in buying a new
car...
Maruti 'True Value'
There was a gradual decline in the market share of MUL over

8. the years from 1999 to 2004. This happened even though MUL
had slashed prices of certain models on a couple of occasions...
Conclusion
The company's change in strategy and emphasis on developing
effective marketing communications began to yield results. In the
J.D. Power Asia Pacific 2004 India APEAL study, WagonR and
Zen were ranked first and third in the premium compact
segment; Esteem was picked as the best entry level car in the mid-
size category.
MUL also topped the J.D. Power Asia Pacific 2005 India Sales
Satisfaction Index in terms of customer satisfaction with the new
vehicle sales process.
As per the J.D. Power Asia Pacific 2005 India Customer
Satisfaction study , MUL ranked highest in customer satisfaction
with after-sales service for the sixth consecutive year.
"Maruti's consistent performance in the study over the past
several years has resulted in a steady increase in the percentage of
its customers who say they intend to remain loyal to the brand,"
said Mohit Arora, India director, J.D. Power Asia Pacific...

9. Maruti Udyog, a joint venture between Suzuki of Japan and the
Indian government, has dominated India's automobile market
by providing a wide range of cars at affordable prices. In the
late 1990s, as competition intensified, it started losing its market
share. A change in management control from the Indian
government to Suzuki, and intensive cost cutting and
productivity improvement initiatives helped the company to
strengthen its competitive position. This case covers the various
restructuring activities undertaken by Maruti since the late
1990s. Excerpts
Background Note
Early History
In the early1980s, the Indian
government decided to produce a
small car, which would be within
the buying reach of the Indian
middle class. The obvious place to
shop for technology was Japan,
which had developed world-class
capabilities in small cars by that
time...
Restructuring
In the early 2000s, Maruti
introduced various measures to
streamline its operational
efficiency and marketing
effectiveness...

10. Product development
Product development in the automobile industry was a very
capital intensive process. At the same time, car companies had no
option but to introduce new models regularly...
Vendor management
Vendor management was a critical success factor in the
automobile industry, where many parts were outsourced. Maruti
had implemented a system of Vendor Rating that gave timely
feedback to vendors...
Manufacturing
Maruti's manufacturing facility comprised three integrated plants
with flexible assembly lines at Gurgaon. The first plant was set up
in 1984 with an installed capacity of 20,000 vehicles per annum...
Brand Building
Brand building had gained momentum at Maruti since the late
1990s. In 2002, Maruti had a promotional budget of Rs 230 crore.
Maruti employed two ad agencies, Lintas and Rediffusion. Lintas
handled advertising for Baleno, Esteem and Zen brands while
Rediffusion took care of Maruti 800, Omni, Gypsy and Wagon R
under its fold. With new product launches, upgradations and
increasing competition, the company decided to give Capital
Advertising the Rs 15-crore corporate advertising account, in
2000...
Excerpts Contd...
Diversification
Maruti entered four related businesses- corporate lease and fleet
management (Mid-2001), buying and selling of used cars (October

11. 2001) auto finance (January 2002), car insurance (May 2002).
Maruti believed it was important to provide customers a "one-
stop shop" for automobiles and automobile-related products and
services, in what it termed the "360 degree customer experience"...
Future Outlook
Maruti had set a target of wresting a 60% market share of the
country's car market during the period 2003-2006.
SPECTRA MOTORS LIMITED
GANDHI PAREKH INVESTMENT CORP. LTD, CTF NO. 170,
MUMBAI AGRA ROAD , NEXT TO ASHOK SILK MILL
COMPOUND, LBS MARG, GHATKOPAR WEST, MUMBAI-
400086Ph #: 022-66440000 ,
Fax :67554560
Email :Pin Code:
SPECTRA MOTORS LIMITED
CTS NO. 17
CTS NO. 170 4081,OPP.
DAMODAR PARK, L.B.S.
MARG,GHATKOPAR (WEST)
Ph #: 022-66440000,, ,
Fax :67554560
Email :spectratruevalue@vsnl.net
/
sales.ghatkopar@spectramotors.in
Pin Code: 400086